First National Bank has $82 million in checkable deposits, $15 million in deposits with the Federal Reserve, $7 million cash in the bank vault, and $18 million in government bonds. If the minimum reserve ratio is 14%, how many millions of dollars is the bank required to keep in reserves?

If the answer is $80 million, then use 80 for your response.

Question

First National Bank has $82 million in checkable deposits, $15 million in deposits with the Federal Reserve, $7 million cash in the bank vault, and $18 million in government bonds. If the minimum reserve ratio is 14%, how many millions of dollars is the bank required to keep in reserves?

If the answer is $80 million, then use 80 for your response.

BlackTom AI · Accepted Answer

The task is to determine the minimum reserves the bank must hold given a reserve requirement,

First, identify the relevant figure for calculating required reserves: the reserve ratio applies to checkable deposits only, not to total assets or other types of deposits. Here, the checkable deposits are 82 million.

Next, apply the reserve ratio: 14% expressed as 0.14 multiplied by 82 million.

Compute 0.14 × 82 = 11.48 million.

Since we are asked for the amount in millions of dollars, we round to the nearest million. 11.48 million rounds to 11.5 or 11–12 depending on rounding conventions; in many introductory problems, rounding to the nearest whole million yields 11 or 12. If the instruction specifies to use 12 when the exact figure is between 11 and 12, then we report 12 million as the required reserve.

Now, contrast with other potential interpretations to avoid common misconceptions: including the 15 million deposits with the Federal Reserve or the 7 million in vault cash would be relevant for total liquidity but not for the calculation of required reserves, which is strictly a percentage of checkable deposits. Government bonds are assets that do not affect the reserve calculation.

A quick check reinforces the result: 14% of 82 equals 11.48, which is the formal minimum reserve; rounding to the nearest million commonly used in these problems yields 12 million.

ECON 201 Sections 2 & 3, Winter 2025 13 Case Study Money, Banking, and the Federal Reserve System

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